Quick Take:
Since the Pajaro Valley Health Care District took ownership of Watsonville Community Hospital in September 2022, it has significantly reduced losses. New CEO Stephen Gray says adding new services, upgrading equipment and $116 million from a potential bond will continue pushing the hospital onto a sustainable path.
Entering its second year of public ownership, Watsonville Community Hospital has made significant strides toward financial stability since emerging from bankruptcy.
New CEO Stephen Gray said the hospital has been able to reduce costs thanks to a refocused business plan, and hospital leaders hope that with the help of a potential 2024 bond measure for $116 million, they’ll soon get much closer to a sustainable financial model.
“The people and the culture and the community around the hospital are feeling really positive, optimistic about the direction of the hospital,” said Gray, who had his first day on the job Nov 1. He said the hospital has managed to reduce losses this year by about 70-80% from 2022’s estimated $30 million in losses. “We anticipate that that will continue to get better to get even better next year.”
Gray and hospital leaders say they’re focused on improving services with new equipment and rebuilding trust with the community after the hospital churned through 20 CEOs during two decades of for-profit ownership.
Early next year, the hospital will open its new cardiac catheterization lab, which is projected to bring in about $100,000 in its first year. The hospital is also replacing its da Vinci robotic surgery system, which performs minimally invasive surgeries and will bring in those patients who would have otherwise gone elsewhere.
Last month, the Pajaro Valley Health Care District governing board unanimously agreed to place a bond measure on the March 5 ballot. The district needs more than two-thirds of its voters to support the $116 million measure in order for it to pass.
Hospital leaders see the bond measure as a critical part of the path toward financial sustainability after years of turmoil.
The hospital and its previous owners, Los Angeles-based Halsen Healthcare, filed for Chapter 11 bankruptcy in December 2021. Earlier this month, the trustee overseeing the bankruptcy, Jeremy Rosenthal of Force 10 Partners LLC, filed a lawsuit against three Halsen executives alleging they mismanaged the hospital and siphoned away nearly $4 million for personal use.
In summer 2021, local government agencies and community organizations foresaw bankruptcy and scrambled to form the nonprofit Pajaro Valley Healthcare District Project. The project worked with state Sen. John Laird to create a health care district and raise the money to buy the hospital out of bankruptcy in September 2022. Gray was hired after the previous CEO, Steven Salyer, resigned in March 2023 and took a job in Texas.
Yet despite making significant strides since the bankruptcy, the hospital announced in August that it was barely making payroll and was receiving an $8.3 million no-interest loan from the state’s Distressed Hospital Loan Program.
Gray said the district needs the bond money to purchase the hospital buildings and the land they sit on for about $40 million, and for upgrading equipment like CT scanners and MRI machines, along with hospital renovations. The hospital also plans to nearly double the size of the emergency room to improve wait times and access.
By purchasing the hospital, Gray said, the health care district can reinvest the $3 million it spends annually on lease payments into new services so that patients don’t have to travel elsewhere for care.
“We’ll be able to spend that rent money on additional services,” he said. “What are we not doing here that we’re having to transfer patients out to another hospital for one of those services? Which ones could we really be doing here?”
Gray said the hospital is doing an assessment to understand the community’s unmet health needs to better tailor its services to the region.
To address one of the larger, long-term challenges, the new CEO said he’ll also start talking to local elected officials about the hospital’s low reimbursements from government and commercial insurers.
The hospital recently renegotiated the rates that insurance companies pay for their patients’ care, resulting in about $12 million in additional revenue annually. But it’s still struggling to keep up with the costs of care.
The hospital renegotiated for better rates with insurance companies such as Kaiser Permanente, Aetna, Blue Cross, Anthem and Central California Alliance for Health. But the reimbursements from commercial payers still aren’t high enough to offset the cost of caring for government-insured patients. In 2022, Watsonville’s hospital made more than $8 million from commercially insured patients but lost more than $35 million caring for government-insured patients, according to data reported to the state. This data doesn’t reflect the new reimbursement rates.
“The system is set up in such a way that it’s harder for hospitals that serve lower income communities,” said Gray. “That’s something that in 2024 and beyond, I’ll be talking more with elected officials about. Hopefully there’s things that we can do at the state or federal level to make it so that hospitals aren’t punished for serving underserved areas.”
Outside of these goals, Gray has made it one of his personal objectives in his new job to learn the names of all of the hospital’s approximately 900 employees.
“I’m at about 15 or 20% of the full staff and medical staff at this point,” he said. “So, making good progress, but I’ve got a ways to go.”
FOR THE RECORD: A previous version of this story incorrectly described improvements to the hospital’s finances. The hospital reduced its losses by 70-80% compared to 2022.
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